Interested to be a taxi cab operator? I must admit I am eyeing that too. Some would say the taxi business is already saturated, but for a commuter like me who can’t easily find an available taxi during rush hour or Friday gimmick nights, then there’s still opportunity.
As follows are some building blocks as we try to build and understand the taxi business model. Gathered from reading forums on taxi operations, internet research and most especially, interviewing manong drivers.
Find A Franchise
To operate a taxi cab, or any public vehicle for that matter, one must have a franchise issued by LFTRB. In simple terms, this makes the vehicle public (yellow plate), for public and commercial use, and allows it to traverse a certain route, such as say Montalban to Cubao or Marikina to Ayala. If you don’t have a franchise but use it for public transport, then your vehicle is considered colorum. For taxi cabs, the franchise is more or less flexible, such as Within Metro Manila to Any point of Luzon. The franchise is good for a certain number of years, like 5 years, and according to drivers, costs around Php120k to Php150k. The bad news is, LTFRB is no longer releasing new franchises. Maybe it does not want to saturate the market.
So is this a barrier to entry? Slightly. The way to get a franchise then is to locate those who are willing to sell theirs, for various reasons. Like those migrating, no longer interested to operate a taxi cab or to renew, those suffering losses, etc. And there are franchise resellers to be found. Also, some drivers suggest inquiring in bigger taxi companies, those who have dozens and dozens of units because at times, these companies allow small players and star-ups to buy partial ownership of their taxi units and their franchises. Once you have a franchise, this will be transferred to your name. So what will you name your taxi cabs?
Find a Vehicle
Again there are many ways to do this, either brand new or second-hand. There are lots of taxi cabs for sale in the internet. Car companies also offer basic car models fit for use as taxi cab. Note though that not all car brands allow their models to be used as taxis. One quick example is Honda. Lots of banks offer taxi cab financing or auto loans, but usually for a minimum number of units and for a partial down payment. Similarly, car companies offer financing and leasing services. Your major considerations should include how old the vehicle is, how it looks like and how’s the performance. Older models (no offense meant) may tend to be less fuel efficient, more prone to breakdowns and accidents (hence repair costs) and attracts less passengers as it may come across as unsafe, unreliable, uncomfortable and mahina ang aircon. Watch out too for regulatory policies, I think there is an upcoming rule wherein public vehicles will have a mandatory maximum age, after which it has to be replaced already. In choosing a vehicle, you might want to bring an automotive technician with you for expert assessment.
Find A Driver
A good, reliable, trustworthy driver that is. Or drivers. This can be the make or break of a taxi cab business, according to cab drivers themselves. If you have good working relationship with your driver, then you can expect him/her to be honest and transparent with you. Likewise, this should translate to good customer service which is crucial. Remember, customers would tend to remember the taxi name and plate number in case of bad experience (more than the driver), which affects your reputation as the registered taxi operator.
Usual daily boundary (or quota) ranges from Php1,000 to Php1,500 net per day, for drivers who use the taxi for 24 hours. If you have a second driver, then they can alternate. The second driver can use the taxi the next day while the first one takes a rest day. Or they can do 12-hour shifts per day. At Php1,500 quota, that’s roughly 15 trips at average of Php100 per trip (some smaller, some bigger especially given the traffic). The rest is his/her take home pay. For those who only have one driver, make sure s/he gets enough rest and does not drive the whole 24 hours. This is risky not just for the driver, but for the business.
The driver shoulders the fuel costs, violation penalties, and what is left is his take home pay. Of the many drivers we have interviewed, they all said that they can easily reach the Php1,500 boundary. Some can even park on the roadside and get some sleep (i.e. 1am to 5am) if they are on graveyard shift and still have enough take home pay before returning the unit by 6am. The operator meanwhile usually shoulders car amortization payments, repair, tune-up and check-up costs, payments in case of accidents (that’s why you need a good driver), regulatory and registration costs.
Operators also have reward systems to encourage good performance from drivers. Some offer a sack of rice or groceries for example when quota was hit daily for the whole month. Or allow lower quota during weekends. In case of deficits, some operators allow make-ups, as long as the deficit gets compensated and paid say within the week. Otherwise, driver cannot use the taxi as long as deficit is unsettled. The trick is to make your drivers, your employees, happy, so they deliver good customer service. Everybody happy.
Rough Profit Analysis
Assuming you got a second hand taxi unit worth Php400k, on bank auto loan for 3 years at 8%.
Down payment is say 30% or Php120k. Amortization on the loaned amount (Php280k) is Php8.8k.
Cost of new franchise, regulatory tests and registration requirements, paperwork, say Php180k. Provisions for repairs, insurance, driver rewards, say Php5k a month.
Total initial investment is Php580k (Php120k cash out, Php280k auto loan and Php180k franchise costs etc). Quite big initial investment especially if you compare to food carts franchise.
While monthly expense is approximately Php13.8k (Php8.8k amortization and Php5k provisions).
At Php1.4k boundary, 22 workdays = Php30.8k
At Php1k boundary during 4 Saturdays (Sunday as rest day) = Php4k
Total revenue = Php34.8k
Adjusted Revenue = Php31.3k (assuming boundary is only reached 90% of the time, and you’re kind)
Total expense = Php13.8k
Total Net Income = PHP17.5k
ROI in ~33 months
In 33 good months, you have recovered your Php580k investment. Assuming good months.
More inputs? Let us know through the comments box below.
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